Underground investor Christian DeHaemer says junior gold stocks are the ones to watch. In fact, he says this asset class will be “the number one asset class over the next two years.” This means that junior miners could make you more money than any other asset class in the near future. According to DeHaemer, there are several factors contributing to this play (most of which will be familiar to Notes readers).

For one thing, the US is creating more money than at any time in history in an effort to inflate the next bubble, save the banks, and extend the hand of government. Bloomberg has put the total bailout bill at $12.8 trillion, which is roughly this year’s annual GDP. The profligate spending by current and past administrations is well documented and ultimately must lead to inflation. What we are seeing now is the de facto definition of an inflation-generating machine. […]We have seen from the 1970s that hard assets perform better in a high inflation environment. Add to this a falling dollar, which is the other side of the same coin, and a flight away from paper currencies into gold, and you get a powerful long-term trend in real assets like oil and gold.

*** Christian says junior miners are a great way to play this scenario because they offer low risk and high reward…

Junior gold stocks didn’t fully participate in the rally that drove gold from $250 to $1,000 per ounce over the last seven years. But they absolutely got hammered in the commodity/credit bust of 2008. Many fell by 75% or more. And these are the top-tier, small companies with little or no debt and plenty of proven reserves. These are companies that were trading at market caps from $500 million to $1 billion a few years ago, that you can now buy in the $100 million range… in December I was able to pick up some of these small-cap gold companies for little more than the cash they had in the bank.

This kind of trade is for gutsy investors only. But here at Notes we reckon this could pay off big time.

P.S: James Davidson’s Crisis Strategy Alert portfolio continues to soar to new heights, without the risks of conventional investments. James has a nose for what he calls “investment outliers” — assets mispriced by crisis conditions. One “income outlier” he recently discovered allows ordinary citizens to pick up “tax rebate” (up to $781.33 a month). These monthly payouts are easy to set up. But you must act fast. The next check could arrive as soon as 4.00 EDT, Friday, June 12.

This from Byron:

Asset classes go up and down. Precious metals are, of course, another asset class. They move with the economic tides. In the past 30 years, gold has rocketed up and plummeted down.

At several points in the past 30 years, things were so bad that gold sellers were like the proverbial Maytag repairman. They led lives of quiet desperation about which no one cared. Because like the late Rodney Dangerfield, gold got no respect.

Heck, between 1999-2002, the British government sold a large amount of its national gold, nearly 395 tonnes (metric tons), for about $275 per ounce. The Bank of England used the proceeds to purchase (ahem) “high-yielding” assets, like bonds. I suppose it seemed like a good idea to somebody. But really. In hindsight, how dumb was that? The British used to fight wars for gold (remember the Boer War, anyone?) Now they’re selling gold to buy bonds? They used to hang people for lesser crimes.

Last March 2008, gold sold for over $1,000 per ounce. Then the price retreated 30% as oil rocketed from about $100 to $147 per barrel. But even though gold fell back in price, it was still selling, on average, for almost three times what the Brits took in less than a decade ago. You didn’t do that with bonds. So the lesson is that we have to keep our eyes open about cycles and trends, even with something like gold.

Just in the past six months, almost every nonprecious metal asset class has been headed down. The stock markets have been tanking. Prices for everything from aluminum to zircon are way down. Oil has been bottom-fishing. The world is sliding downhill into deep recession. It’s a long litany of bad news out there. Except for precious metals, which have held their own.

Lately, precious metals have been in a stealth rally. It was not front-page news, until last week when gold touched the $1,000 mark again. But the operating gold miners in the OI portfolio, hit lows in October 2008. And they’ve all been rising in the markets ever since.

What’s going on? It’s a worldwide trend. Investors have been flocking to gold and silver. There’s a money migration going on. And I mean BIG money is migrating. It’s like those herds of zebras or wildebeests or gazelles in Africa. When they migrate, the earth shakes and the ground is just a moving kaleidoscope of hides and footprints. The dust clouds blow high into the sky.

Yes, the world economy might be in a recession. People across the world are worried about their job and security for their family. But other people with big bucks are scooping up gold and silver. Those buyers are looking for investment safety.

Moneyed investors don’t trust the world’s governments or paper currencies. So they are going with gold and silver. The mines and mints are having trouble keeping up with demand. Exchange-traded funds (ETFs) are buying huge volumes of gold and silver. (And they ought to be buying more. At the margins, at least, it appears that even the ETFs are holding “paper” gold rights, as opposed to the real McCoy metal.)

Let’s look at silver. In January 2006, the total silver held in ETFs was about 40 million ounces. By January of this year, 2009, the total silver in ETFs exceeds 280 million ounces. That’s an increase by a factor of seven in just three years.

The story with gold is just as dramatic. Who ever heard of a gold ETF until just a few years ago? But by the end of 2008, gold holdings of ETFs reached a record level of 1,090 tonnes, according to the World Gold Council (WGC). Thus, ETF holdings now exceed those of Switzerland and many other large and important nations. (Check the listing below.) In the fourth quarter of 2008, investors purchased ETF gold interests representing 96 tonnes of gold. (Far more than the total gold reserves of Australia.) This followed the purchase of an unprecedented 145 tonnes (more than the reserves of Saudi Arabia) in the previous quarter, according to the WGC. These are astonishing levels of demand, where there was almost none just a few years ago.

Much of the gold in the vaults of the worlds’ central banks has accumulated over many decades. Much of the U.S. government gold reserve, for example, dates from the national gold confiscation of 1933 under President Franklin Roosevelt. Roosevelt had a compliant Congress to do his bidding. Eventually, even the Supreme Court backed him up. So what’s that old expression? “It CAN happen here.”

Many other countries of the world are currently buying gold, fresh from the mine. Today, China is the world’s largest gold-producing nation, and its central bank is buying and building reserves. Russia, too, has a tradition of holding gold and today is acquiring gold from its own mine output and via purchases on international markets. Or look at tiny Qatar, a small nation in the middle of the Persian Gulf. Qatar had only 8 tonnes of gold about three years ago. Now it has 12 tonnes, an increase of 50% in a very short time. What do the Chinese, the Russians or the Qataris know? They know that they want gold. They can buy it. They will hold it. And they are hoarding it.

I’ve mentioned on many occasions that I like holding precious metals. I like holding metals as an investment and I just like the feel of the stuff. At the “elementary” level (yep, that’s a pun), you can hold physical metals. If you’ve never felt the coolness and heft of a shiny gold $50 Eagle or a Canadian Maple Leaf in your hand – let alone a fine old specimen of a $20 coin from the days of old in the U.S. – you’ve missed something. Really, the only thing better than holding an Eagle or Maple Leaf is holding an entire roll of 20 of them.

When I was in South Africa last year, I visited a refining operation and actually picked up a gold brick. It was almost right out of the melting pot. The brick was still warm, and the darn thing weighed about 75 pounds. That’s what I call “useful weight gain.” Too bad I couldn’t bring it home with me. But the armed guards at the refinery might have objected.

I’ve never made a formal OI recommendation for buying a particular kind of gold or silver coin, or ingots from this mint or that or any such thing. Those kinds of gold purchases are too hard to track in a newsletter like this. So I’ve recommended gold and silver miners and their shares. But over the past couple of years, I hope you’ve had the chance to acquire some real metal for your portfolio. Agora Financial has been banging the golden drum for at least 10 years. If you have never bought any gold, it’s still not too late. I think that the recent visit to $1,000 is just the beginning of another great wave of gold buying. I won’t be surprised to see $3,000 gold.

Coins and ingots are the kinds of things you keep in your bank safe deposit box or in a well-hidden home safe. Some people keep them in their “second” home safe. Why a second safe? Well, the first safe is the one with a few hundred bucks of cash and some good-looking costume jewelry in it. You would open the first safe if a robber broke into your house and held a gun to your head. (Sorry, I’m not kidding. We live in a tough world.)

And for as much as I urge you to own some gold or ingots, you should never talk about it. OK, you might tell a few family members or maybe a trusted friend or two. But the fact that you have a stash of real gold is too valuable to broadcast or advertise. As I said above, “It CAN happen here.” It already has happened here. It might happen again, if things get too rough out there.

Source: Nothing Shines Like Gold

This from Whiskey and Gunpowder:

The Inauguration is over. It’s PRESIDENT Obama now. So let’s get back to work.

What can we discern about the incoming Obama administration? I had a long talk with an old friend who is a self-described “rabid Democrat.” Let me rephrase that. He’s a rabid Democrat in the way that Pittsburgh Steelers team owner Dan Rooney is a rabid football partisan. This friend of mine loves his Democratic Party. Just as Mr. Rooney wants his Steelers to win the Super Bowl, this guy’s focus in life is for his political tribe to do what’s right for the country. This friend of mine is also privy to the inner circles of Democratic politics. He’s just plain plugged in. He’s on a first-name basis with many on Team Obama.

So what’s on Obama’s plate? “Well, the first thing the new group has to do is stabilize the banking system,” he told me. “Things are still precarious with the banks. Liabilities exceed assets by a large margin. We will probably see more bank failures — small and even some large banks. That would hurt worldwide investor confidence and lead the stock markets down. We could test the old lows of last fall.”

This Democrat insider then got into other issues. “The housing crunch still has more rope to hang out, as well. A lot of the problem is isolated in a few states and regions of states — California, Arizona, southern Florida, the New York City metropolitan area, Massachusetts and a few other places. But it affects a lot of people. We’re dealing with populous, overbuilt places. We are also on the cusp of a lot of failures of government entities, from localities and school districts to counties. We’re going to have a lot of municipal bond defaults. We’re going to see municipal bankruptcies. Some large states are insolvent. California can’t meet payroll.”

And there’s more from this guy. “The next big wave will be that consumer spending dries up. This will lead to a failure of retail businesses all over the country. It’s going to be a huge unwinding. We spent the past 25 years spending more than we could afford. Now we as a nation have to pay some big bills. It’s time to save. It’s a good thing, in the big scheme, for people to save. But it’s going to put a lot of pain into the retail sector of the economy. We’ve overbuilt retail, and everything that goes with it. Too many stores. Too many buildings. Too much inventory. Too much shipping capacity. Too many containerships unloading too much stuff made in China and elsewhere. And a lot of people are going to lose jobs. I mean a lot of people. Everywhere.”

“The Next Two Years Are Going to Stink”

Here’s more from the Democrat insider. “The next two years are going to stink for the economy. Obama will face one financial crisis after another. He’s going to hate Wall Street. He’s going to hate bankers. Every time he turns around, the money people are going to be screwing him. He’ll try to fix one problem, and five more problems will spring up like weeds. (“Only five?” I asked.)

“The coming financial issues will test the ability of the legislative branch to act with integrity in the face of a media-driven clamor. States will be lining up to borrow money from the feds just to pay unemployment compensation, let alone to fund Medicaid and road maintenance. It will test the legal system as well. Expect more petty crime and a lot more bankruptcy. But fewer people will get divorced. Who can afford that anymore?

“And think about the foreign policy issues that the financial crises will cause. Just think in terms that when U.S. prosperity declines, it takes the world down with it. The economic contraction is going to set some societies back by decades. Will people take that lying down? Or will they riot in the streets and burn down the capitol building? Expect a rash of failed states. We’ll be surprised at some of the names that fall off the map. Wow, we might look back and wish for the days when the world hated us just because we invaded Iraq. Now they’ll blame us for stealing their future.”

“The Republicans will make political hay out of it. Unless they are totally incompetent, which you can’t rule out. Democrats will probably lose seats in the House and Senate in the 2010 elections, as well as in state legislatures and governorships. But Obama will be working his own game of building consensus. He’s from a new generation of politician. He’s not nearly as in-your-face confrontational as the Democrats of the 1960s and 1970s era, the Kennedys and Waxmans and Barney Franks. Obama will build coalitions out of whomever he can get on board. You might not like him on issues like gun control or abortion, but you’ll deal with him on tax cuts and energy investment.”

Where Do You Go From Here?

So where do we go from here? Well, here’s my post-Inaugural advice. Build up some cash reserves. Got that? Hold Cash! Cash in the mattress. Cash in the bank. Certificates of deposit. Don’t try to get too fancy. Just save some cash where you can get hold of it in case you need it pronto.

Next, buy precious metals like gold and silver. Bullion coins or bars are my favorites. But it never hurts to buy a few quality numismatic coins as well. Don’t get spooked out of precious metals if we see a price dip in the near to medium term. The dollar is in serious trouble, and eventually the precious metals will come back. Precious metals are a way of preserving your purchasing power over the long term.

As for stocks, in the near future, we could see some severe market declines. Initially, this might look like large trading spikes up and down. Unless you are a serious trader, be careful about trying to “play” the swings. Don’t be afraid to sell any stock that makes you nervous. You have to be able to sleep at night. Along these lines, I’ll keep addressing the OI portfolio in future updates.

There are certain investment ideas that will probably work over the long term, like really good precious metals miners. Kinross Gold (KGC: NYSE) and Goldcorp (GG: NYSE) come to mind. The point is that you want well-capitalized miners with solid reserves and good production facilities.

Source: Inside The Obama Huddle: Housing, Banking, Life and Crisis

For the tale of the tape, the TSX Exchange gave back a modest 0.09%, while the TSX Gold Index surged 2.6% and the TSX Venture Exchange, Canada’s largest junior exploration bourse, added 0.93% with the advancing issuers beating the decliners by a 571 to 447 margin on good volume of nearly 248 million shares traded.

It was a good day for shareholders of Cash Minerals as the company announced a strategic review to reassess the economic potential of the Division Mountain coal property in the Yukon, which hosts a measured resource of 52.5 million tonnes of high-volatile B bituminous thermal coal. Cash ended the day up C$0.055 at C$0.27.

Shares in Potash North Resource rallied for the third straight day following news that the Saskatchewan Mines Branch has issued a potash permit covering 91,000 acres. The company added C$0.48 to close at C$2.55.

Canplats Resources moved C$0.02 higher to close at C$4.92 after investors digested the latest results from the Represa zone on the Camino Rojo project in Mexico. Highlights included 292 metres running 1.16 gram gold, 11.65 grams silver per tonne, plus 0.4% zinc.

X-Terra Resources remained halted at C$2.21 but the company did table news that Brownstone Ventures will acquire a 50 percent interest in applications for some 150,000 hectares of land in the Quebec lowlands, prospective for gas shales. Brownstone will issue two million shares and two million warrants, which are exercisable at a price of C$2 for two years. Brownstone also agreed to purchase 850,000 units in X-Terra.

It was a strong end to the trading week as investors are banking that the junior market is ready for a Summer rally. We will see what Monday trading has in store.

Source: Resource Stock Roundup: Saturday, June 7th, 2008

Goldcorp is one of the largest and best-managed gold miners in the world. Most of its assets reside in Canada – one of our favorite destinations for resource investment. As you can see from our chart today, this bellwether is exhibiting the signs of a bull market.

A bull market is defined by its tendency to make “higher highs and higher lows.” Goldcorp’s chart below is a classic example. Since correcting down below $22 a share last year, Goldcorp now sits at $40. Each rally reaches a little higher than the previous one. Each decline fails to reach previous lows.

Our colleague David Galland put it in simple terms back in March. After years of digesting higher production costs, big gold miners are reaping the benefits of $900 gold. Cash flow is increasing… and it’s a bull market in gold stocks.

Source: Goldcorp: The Picture of a Bull Market

A: No. You can make gasoline out of asphalt. Oil is a hydrocarbon, which is a fancy name for a long chain of carbon, hydrogen, and various other atoms.

The smallest of these chains is methane gas (cow flatulence), made up of one carbon and four hydrogen atoms. The really long chains, like asphalt or the bitumen from oil sand, can be “cracked” into smaller pieces to make gasoline and heating oil.

Some refiners lack the ability to crack extra-long hydrocarbons, and must rely on “lighter” crudes. But these days, those crudes are harder to find and carry a premium price tag.

So several companies are either updating their refineries or building upgraders. An upgrader is simply a pre-refinery, where they can clean up bitumen, remove all the impurities (like salt and sand), and chop it into shorter chains so regular refiners can handle it.

As these upgraders come on line, demand for the oil sands’ bitumen will skyrocket, pushing prices up. That’s great news for big oil sands players, like Suncor. But the triple-digit gains will come to the smaller oil sands outfits Wall Street has yet to discover. Click here to read about one of my favorites right now.

Q: When I began to buy gold, I bought IAU instead of GLD. Their performance is the same, but everyone seems to recommend GLD and never IAU. Have I made a major mistake? – D.H.

A: Nope, your investment is fine. IAU and GLD both hold bullion, i.e. physical gold. The big difference between the two is size: GLD has a market value of $19.2 billion, while IAU is only about $2 billion. So anyone who wants to buy large blocks of shares will choose the more liquid option, GLD. But their price performances are virtually identical.

Besides the bullion funds, you can buy ETFs to bet on gold miners and gold futures. Take a look:

As you would imagine, bullion is the most straightforward. These funds have a vault full of coins or bars that, theoretically, cover the shares.

The only futures fund on there is DGL. But using gold futures seems like an unnecessarily complicated way of tracking the price of gold, so I’m not fond of it.

The last fund is simply a basket of gold-mining companies that tracks the AMEX Gold Miners Index (^GDM on Yahoo). The top five holdings – Barrick, Goldcorp, AngloGold Ashanti, Newmont, and Goldfields – make up about 36% of the index.

These big miners are underperforming bullion ETFs over the last two years (GLD is up 27% while GDX is up about 17%). But I think this fund will do well when we reach the mania stage in the gold bull market.

For investors who simply want exposure to gold or mining, these funds are an easy place to start.

Good investing,

Matt

P.S. If you have another exchange traded fund you use to buy gold, send me the symbol so I can tell people about it. I’m always looking for new ideas.

Source: Why Athabasca Crude Oil Will Be Worth More and More

For the tale of the tape, the TSX Exchange dropped 0.3%, while the TSX Gold Index lost 0.8% and the TSX Venture Exchange, Canada’s largest junior exploration bourse, matched Tuesday gains by adding 0.22% with declining issuers still out pacing the advancing issues this time by a 551 to 498 margin with good volume of nearly 202 million shares traded.

Gammon Gold posted first quarter earnings of $0.07 per share on production of 33,099 ounces of gold and 1.31 million ounces of silver at cash costs of $491 per gold equivalent ounce. Cash flow turned positive at $1.6 million. Gammon ended the day up C$0.75 at C$8.67.

Kinross Gold earned $70.9 million, or $0.12 per share in the first quarter compared to $68.5 million or $0.16 per share in the same period of 2007. Gold production rang in at 331,784 gold equivalent ounces with cash costs coming in at $455 per gold equivalent ounce. Kinross ended the day down C$0.62 at C$19.28.

The board of Yukon Zinc has given its nod to the takeover offer from Jinduicheng Molybdenum Group and Northwest Nonferrous International Investment Company. The deal is C$0.22 in cash and if approved by shareholders, London-listed Griffin Mining will get a $2.5 million break fee and related expenses, not to exceed $250,000. Yukon Zinc ended the day up C$0.005 at C$0.21.

The gold miners are coming in with first quarter results that show higher costs impacted the bottom line. We will see what Thursday trading has in store.

Platinum did much better, pushing higher through the NYMEX session and trading sideways during the afternoon, to end just off its intraday high at $1960/oz., up $33. Overnight, platinum is sharply lower.

Silver ran all the way to $17 at mid-morning, before determined afternoon selling took it back to a close at $16.84, up 15 cents. Overnight, silver is trending lower.
(Click here for charts)

A pretty lackluster day for gold, although its sister metals performed well, as buyers are trying hard to put the ‘correction,’ if that’s what it was, behind them.

It didn’t hurt that it was a very supportive day on the part of the usual suspects, surging energy prices and a dollar that continues to tank, although gold bulls had to be disappointed that the metals market didn’t react more dramatically.

Clearly, traders are not throwing their arms entirely around the factors that are breaking so much in their favor. It is also likely that some see the bounce of recent days as an opportunity to take some cash off the table. And others may be watching as the first quarter reports from the gold miners flood in.

Most influential, though, is probably the dollar. Many are wary after it had such a run-up against the euro, and are biding their time until they become convinced that the buck has truly turned down again.

Jim Sinclair, of jsmineset.com, isn’t mincing his words on the subject. “Keep in mind,” he writes, “that the fundamental reason for gold’s normal violent reaction was the euro coming off the $1.60 level, seen by some as a top. It is NOT!”

He goes on to say that “it is unlikely that the ECB will join the Fed in the race to 0%. Considering inflation even at the manufactured rate the PPI and CPI show, the Fed is giving away money in exchange for garbage paper at ZERO percent.”

Sinclair concludes: “I dare to say the bottom in gold has occurred this week. Gold will take out $1024 on the third try. Now the magnet is at $980 to $985.”

A year ago the Miner Diaries noted that uranium was the unexploited opportunity for South Africa’s gold stocks. It is a by-product of the gold mining process, and the price has been rising, so it could solve mounting cash costs. And it is the raw material for increasingly popular nuclear power. Bingo!

The big South African gold miners have been pretty slow to decide the best way to harness this potential. In fact, before Bernard Swanepoel, (Harmony’s last CEO), jumped ship he admitted that Harmony had been sitting on its uranium potential for five years! At one point, Harmony had even considered selling its uranium assets. Fortunately, that was not to be.

Anyway, after mulling for years over how best to exploit this opportunity, the process is over. Last month, Harmony decided to put 40% of its energy – pardon the pun – into a new company.

This is a strategy that mirrors that of Simmer & Jack Mines. It owns 63% of First Uranium. There is also interest from international companies – Australian-listed Mintails wants a slice of South Africa’s yellowcake. And, unsurprisingly, majors Goldfields and AngloGold Ashanti are also considering how to get the best value out of their uranium assets.

The race is on to dominate this new battlefield.

And there is gold here too

Though initially this baby was just referred to as “newco”, Harmony’s new JV now has a name. The guys have kept it simple. Led by John Munro, former VP and head of corporate development at Goldfields, “newco” has been registered as “Rand Uranium”. Logical! After all, the core assets are at Harmony’s Randfontein site, south of Krugersdorp which is West of Joburg.

The remaining 60% in “Rand Uranium” will be held by Pamodzi Resources Fund. This is backed by private equity investors, First Reserve and also AMCI Capital. The t ransaction is said to be worth $420m.

So, unsurprisingly, Harmony is being energetic about the project. In fact, CEO Graham Briggs has been quite clear that he intends to retain that 40% holding even if that means investing more to avoid dilution of its shareholding.

Gold companies in South Africa need all the help they can get. Using Rand Uranium as a platform for growth seems a step in the right direction. The plan is to maximise returns from its uranium assets while not breaking the bank.

Recommended

Fancy £4,064 this May? You’ve got till Wednesday 30th April to find out how…

This is the final invitation you’ll receive to rake in £19,500 – £48,000+ a year TAX FREE. Seriously, you’ll only need 20 minutes a day, an Internet connection… and the desire to dip your sticky fingers into a multi-billion pound honey pot. But you WILL have to act quickly!

On 30th April 2008 the doors will slam forever: this is your last chance to swipe sums between £95 and £3,880 in as little as 8 days!

Drilling has already taken place and the reserves fall into the more reliable ‘measured and indicated’ categories. That is a grade of 0.215kg of U308 per tonne of excavated material, versus 0.05 to 0.07kg/tonne at other dumps around South African’s West Rand. By the way, U308 is ‘yellowcake’ – the impure mix of uranium oxides which are obtained while processing uranium ore. It is used to prepare fuel for nuclear reactors.

In addition to those reserves, there is said to be some underground resource which will yield more uranium and possibly gold. Let’s not rush, though. The project is still in the pre-feasibility stage, so any profit or resource projections would be premature.

The measure of the man

Forty-year old Mr Munro has a degree in chemical engineering from the University of Cape Town. Working at Goldfields since 1991, he has worked his way up the ladder to the top. Soon that seemed a bit run of the mill. He wanted to be closer to some real action with visible pay-offs. The energy sector offers that.

Another key attraction was the “private equity angle”. Spared the disciplines of stock market reporting the company can take a softly, softly approach. Absent are the pressures of quarterly reporting.

Before taking the job he spent two months assessing Cooke’s viability. He is pretty confident! Some estimates value Cooke’s resource at US$40/tonne. Gold accounts for $6-7/tonne of that, and uranium for $33/tonne. Very nice! And Munro is confident that whichever way you look it, the margins are “significant”.

And also desirable! First Uranium and Russia’s Renova apparently also tried to bid for Harmony’s assets.

Timing is everything

As an unlisted company with no share price to assess performance, what should Harmony want to see from its new venture? The immediate plan is to bring the existing assets to production. Uranium production will come first, followed by gold.

There are two critical periods ahead. The first is to complete the feasibility study – that should happen by the end of 2008. Then developing production will take a minimum of two years after that.

Once in production, Rand Uranium could qualify as the world’s tenth biggest uranium producer. And in three years time the plan is to list.

Right now the sale may help Harmony to pay down some of its ZAR4bn debt! And it should certainly mean big profits when the company reports in June. (Admittedly an exceptional profit, which won’t affect headline earnings.)

Still, Pamodzi could just be the energy boost Harmony is after.

Keep mining,

Erin and Isabel

But now, two things are happening:

First, the planet seems to be running low on easily obtainable energy. Cheap oil fired the furnaces, filled the pistons, and greased the gears of the whole machine. Now, oil is not so cheap… In fact, it hit a new record high last week.

Second, the non-Europeans have caught on to the magic of the Industrial Revolution. They’re building newer and better factories – and staffing them with cheaper, harder working labor. What’s more, they’re competing with the West for the raw materials to feed their factories. And, perhaps most important, they’ve got money – mountains of it. While Europeans – led by Anglo-Saxons – squandered their wealth on pointless wars and frivolous spending, the non-Europeans have been saving and investing. The Chinese, for example, are said to save more than 25% of their incomes.

And now, a kind of financial war seems to have broken out. We have opined that this is not merely a war between inflation and deflation…but a war of Total Liquidation…in which the huge debts built up during the expansion phase of the credit cycle – roughly, 1980-2007 – mostly in the West, especially in America and Britain, will be written down, written off, and inflated away.

Neither inflation nor deflation will be a clear winner, in other words. Instead, like WWI, both will do damage…and in the end, very few people will be better off. Some possible exceptions – gold miners, commodity producers, and emerging markets.

No one will benefit much from deflation. But commodities and gold will reap some gain from inflation.

On Friday, for example, we saw both in action. The Dow tumbled 256 points – after GE proved that it could was vulnerable too. Its shares lost 13% of their value in a single day. What provoked the run on GE was disappointing earnings – particularly, you guessed it, in its finance division.

Finance was the big winner in the expansion of 2002-2007; it will be the big loser in the contraction phase.

While deflation was battering investors’ wealth…inflation was aiming its wallops at consumers’ budgets. Rice and oil hit record highs. Corn and tin too.

Interestingly, $6 corn is too much for the ethanol business. The industry was a fraud from the get-go, requiring taxpayers’ money to justify turning corn into fuel. But now, even with subsidies, corn is too expensive and the ethanol producers are going bust.

They deserved it. But pity the poor people who have to eat. A handy chart on this weekend’s edition of El Pais shows what has happened to basic food prices. In the last two years, corn, wheat and rice have all more than doubled. And get this, in 2007, stockpiles of these grains fell to their lowest level in 25 years.

No wonder there are food riots breaking out all over the place.

But let’s return to our big picture view.

Inflation and deflation only appear to be “at war” with one another. Sometimes inflation has the upper hand. Sometimes, deflation. But over the next few years they will make common cause in the destruction of wealth in America, Britain and a few other economies.

Why do we single out the Anglo-Saxon economies? Because they were the ones that most feverishly embraced what became known as the “Anglo-Saxon model” of economic growth, what our friend Kurt Richebächer used to call “late, degenerate capitalism,” marked by a freewheeling financial industry, widespread securitization of debt, and overall debt at breathtaking levels.

One awkward feature of this model was the fact that the rich got a lot richer…while the poor stayed about where they were.

The Financial Times explains:

“After decades of ‘financialisation’ in the US and other Anglophone economies, whereby financial services have increased their share of gross domestic product, banks are being bailed out – using public money…

“From a political perspective the notable feature of the inegalitarian, free-market era that began in the 1980s is how little backlash there has been against the stagnation of ordinary people’s earnings in such a large portion of the developed world economy….This is potentially dangerous territory…

“Between 1979 and 2005 the pre-tax income for the poorest households grew by 1.3 per cent a year, middle incomes before tax grew by less than 1 per cent a year, while those of households in the top 1 per cent grew by 200 per cent pre-tax and, more strikingly, 228 per cent post-tax.

“The result of this lopsided distribution of income growth was that by 2005 the average after-tax income for the bottom fifth of households was $15,300, for the middle fifth $50,200 and for the top 1 per cent just over $1m.

“Looked at from another perspective, in 1979 the post-tax income of the top 1 per cent was 8 times higher than that of middle income families and 23 times higher than the lowest fifth. By 2005 those ratios grew respectively to 21 and 70. The process reached its extreme point with US President George W. Bush’s tax cuts. Emmanuel Saez of the University of California at Berkeley estimates that in the economic expansion of 2002-06 the plutocratic top 1 per cent captured almost three-quarters of income growth.

“Figures for wealth, derived from the Federal Reserve Board’s Survey of Consumer Finances, are less up-to-date but the picture is similar. The share of US wealth owned by the top 1 per cent of households rose steadily from 20 per cent in 1976 to 38 per cent in 1998.”

The backlash has already begun – just listen to America’s presidential candidates. They’re all bidding for the resentful voter – complaining about high executive salaries, kvetching about the Bush Administration’s bail out of the banks, and whining about tax cuts for the rich. They all want to soak the rich…and bailout the ‘little guy.’

But they can stop worrying. Wealth is self-correcting. Economic success is self-healing. In this new downturn, the rich will lose more than the poor – simply because they have more to lose. They were the big gainers from the Industrial Revolution…and then the late, degenerate financialization stage of capitalism. They will probably be its biggest losers too.

Bill Bonner
The Daily Reckoning Australia

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